What rising inflation means for your finances, savings and mortgages

UK has risen to its highest level since April, according to new figures.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose to 2.3% for October from 1.7% in the previous month.

A sharp rise in prices drove the jump after Ofgem increased the price cap for gas and electric rates by around 10% at the start of October.

Treasury Chief Secretary Darren Jones insisted the latest inflation figures were “good news” despite the rise. He said: “We know that the continues to be a problem for working families across the country, but gone are the days when inflation was at 10 or 11%, driving family bills through the roof.

“The key driver of inflation statistics today is that expected increase in the energy price cap set by the regulator Ofgem. But the good news is that inflation is stable. It’s close to target, and that will be good for working families across the country.”

What is inflation?

Inflation is the economic term for the sustained increase in prices for goods and services over a specific period of time.

The goods and services analysed include everything from food and transportation to medical care and are weighted towards households’ most consumed areas.

The Consumer Price Index (CPI), the international measure that examines these inflation rates, increased to 2.3% in the UK in October 2024, up from 1.7% in September.

What does the inflation rate mean for money?

The rise in the inflation rate means higher product prices and a fall in the purchasing power of money. When general prices rise during inflation but the value of money stays the same, households can buy fewer goods for the same monetary sum.

As CPI rates report a 2.3% inflation rate in the UK, this indicates goods now cost 2.3% more than they did last year.

Alice Haine, personal finance analyst at , the online investment platform, said: “An uptick in the headline inflation figure will be worrying for households who may be fearing a return to the dark days of rapid price rises that devastated household budgets in recent years. Higher inflation diminishes spending power and erodes savings, making it harder for people to maintain their living standards.

“While inflation at 2.3% remains still a vast improvement on the peak of 11.1% at the height of the cost-of-living crisis two years ago, households are likely to be concerned that the current period of improving financial flexibility may prove to be short-lived.”

Here’s what the latest inflation data means for your finances.

Mortgages

The Bank of England made its second quarter-point rate cut earlier this month, with many hoping for a follow-up in December. With inflation slightly exceeding the Government-set target of 2%, the next rate reduction may be put on the back burner.

Ms Haine said: “While the rate-setting Monetary Policy Committee is likely to consider other data points aside from the headline inflation rate when they deliver their next decision – such as the cooling jobs market and slowing economic growth in the third quarter of the year – Labour’s spending and tax plans in the Budget have thrown a spanner in the works.

“The Bank of England has already warned that Chancellor Rachel Reeves’ changes may push up the cost-of-living, with major businesses also wading in to raise the alarm over the effect hikes in business taxes will have on inflation.”

Since the Budget, the average cost of a new fixed-rate has been creeping up as lenders price their products to reflect expectations that may stay higher for longer.

Ms Haine warned: “With the latest inflation reading confirming that inflation has not only risen back above the Bank’s 2% target but has come in higher than expected, it means that borrowers could have more pain to contend with if more lenders adjust their rates upwards.”

Savings

Rising inflation isn’t great news for savers either, according to Ms Haine.

She explained: “While it may slow the disappearance of the top savings rates, as could potentially remain elevated for longer, a higher inflation rate eats into savers’ returns.

“While the best savings deals are still comfortably outstripping inflation for now, the combination of higher inflation and easing savings rates may dull the outlook from here.”

Ms Haine urged: “Locking in the best savings deal possible, while rates remain higher, is the best inflation-beating strategy, particularly for those with cash languishing in an account delivering dismal returns.”

Those with sizeable sums in a savings account may want to look into more tax-effective accounts to protect more of their wealth.

For example, investing in Individual Savings Accounts (ISAs) and pensions is becoming more popular, particularly as frozen or reduced personal tax thresholds push more people into higher tax brackets as their incomes rise.